This was a really attention-grabbing week should you have been paying consideration. On Tuesday, the market declined after which noticed a sizeable rally start later within the day. Then on Wednesday, the market continued its decline. And, these have been the headlines we noticed:
Tuesday Morning’s Headline => ‘Market down on investor fears of a Fed Charge Hike’
Wednesday’s Headline => ‘Market down because the Fed proclaims No Charge Hike’
I might love for somebody to clarify these headlines to me in a constant method that doesn’t trigger us to just accept any psychological gymnastics. And, to be sincere, I’m not holding my breath.
To anybody who’s being sincere, there have been no surprises by the Fed this previous week. Actually, CNN famous the identical.
Washington, DC – CNN: The Federal Reserve mentioned Wednesday it should pause its charge hikes, preserving its benchmark lending charge at a 22-year excessive, whereas signaling fewer charge cuts subsequent yr.
The transfer was broadly anticipated, after the central financial institution signaled in current weeks that it meant to attend for extra knowledge to grasp how earlier charge hikes are affecting the US financial system.
Now, should you have been making an attempt to make sense of the motion this previous week primarily based on the information or economics, you have been possible struggling (once more, assuming an absence of psychological gymnastics). Personally, I can’t say that the draw back motion this previous week stunned me, as I advised you to count on it final week.
Whereas the scale of the rally that we noticed on Wednesday morning did shock me a bit, I famous to members on Wednesday morning that so long as the remained beneath 4465, I used to be nonetheless trying all the way down to the 4230-4274SPX area. The excessive of the day was 4461SPX.
And, as per the chart I posted a number of weeks in the past, we now have been monitoring a set-up for the market to take us all the way down to the 4230-4274SPX area
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Take notice that this evaluation was not primarily based on what the Fed was going to do or not going to do. Actually, the chart was created the week earlier than the Fed announcement. And, the truth that the Fed principally did nothing surprising, but the market dropped pursuant to our expectations solely reinforces our view as to how the market operates.
Actually, I even warned you final week that the decline we have been anticipating would possible be blamed upon the Fed, it doesn’t matter what they mentioned:
“Ought to we see that draw back comply with by way of within the arrange I’m outlining, then it should possible be blamed upon a response to the Fed this coming week. However, please learn that quote from Robert Prechter once more, and hopefully you’ll not come again right here and inform me that the Fed “brought about” that drop. They may merely be a catalyst for a market transfer that’s being arrange.”
But, regardless of what CNN reported above, I’m fairly positive that a lot of you’ll don your blinders, and declare with certainty that it was the Fed that brought about the decline. As for me, I’m content material to acknowledge that the Fed announcement was the catalyst for the transfer we anticipated (for which I even warned you earlier than it occurred), whereas the substance of the announcement was probably not essential. And, primarily based upon the truth that there was no actual information from the announcement, and the market declined as anticipated, it will appear to assist our competition.
I current related empirical proof to you week after week, outlining that information or stories can act as a catalyst for a market transfer, however the substance of that information or report is not going to essentially be instructive as to the course of the transfer. Relatively, it’s market sentiment that can present indications relating to the course of the transfer.
In fact, when the market reacts as you count on it to react to the substance of the information, you’re greater than prepared to resign your self to acceptance. But, you don’t have any reply when the market does one thing exterior of the generally held expectations developed primarily based on the substance of the information or report. Does that ever hassle you?
In case you are merely dismissing my market views with out delving into the substance of our evaluation methodology due to some preconceived notion you keep, then perhaps you’re extra prepared to just accept that I possess the inventory market almanac from the longer term, just like the sports activities almanac that Biff Tannen had in Again To The Future. Admittedly, I’ve no such almanac. However, if that makes it extra comfy so that you can clarify away our accuracy within the markets, with out difficult your self to hunt out the reality, then be happy to undertake any motive you want.
For these of you who’re extra prepared to open your minds to one thing that would extra constantly clarify market actions, be happy to begin with this six-part collection I penned on In search of Alpha and EWT that outlines our market evaluation methodology.
Transferring again to the market motion, I might be remiss in my obligations as a market analyst in noting that there’s additionally potential that the excessive strike in July was a longer-term prime. That’s the reason I suggested our members/shoppers to lift money as we have been heading into that topping construction I used to be outlining for them over the summer season. However, for now, I’m viewing this pullback as a corrective construction that ought to set us up for our subsequent rally to assault the 4800SPX area.
But, I’ve outlined to our members the target parameters that can help us in figuring out if we’re going to redeploy the money we raised a number of months in the past, or if the market has certainly supplied us with a long-term prime. I simply posted that 3-page evaluation this weekend.
To offer you a quite simple understanding of how I’m seeing this, our subsequent assist beneath is the 4230-4274SPX area. So long as that assist is revered, and we full the draw back construction I’m monitoring, then I’ll view this as a shopping for alternative for the rally I might then count on to 4800SPX. A decrease assist area beneath is within the 4165-4185SPX area. Ought to we see a breakdown beneath that assist, then that opens the door to a serious prime being struck, setting us as much as break down beneath October 2022 low over the approaching yr. This paragraph ought to give you moderately goal draw back parameters for the approaching weeks.
Furthermore, our resistance is the 4360-4401SPX area. Ought to we see the market break again out by way of that resistance, then that could be a robust sign that the low is in place, and a rally to 4800SPX has possible begun.
